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tv   Book Discussion on Lost Decades  CSPAN  December 20, 2015 1:00pm-1:31pm EST

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the former kgb agent, berlusconi eight billionaire media mogul and it was fascinating to watch the two of them interacting and to see how strong leaders only really respect other strong leaders. >> host: alan friedman, the author of the new book, "berlusconi", that story of the epic billionaire who took over italy. >> this week in the c-span 2 are hosted by our charter comedic and partners explores the history and literary culture of massachusetts. located approximately 40 miles west of boston, if lady key role role in the revolution and that women's suffer-- suffrage movement. known for its innovators and commerce of industry peer reviewed on book tv we will learn about the life of political philosopher henry george, publish progress and property in 1879. then we will visit the american society, one of the largest for pastors in the country of
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original books, pamphlets and periodicals related to the history of the united states. that, we will talk with author jeanette greenwood and discuss her book, first birds of freedom, but the migration of african-americans after the civil war. >> there were, you know, organizations, every town in the county had when. there were lots of, there were breaks out, quite a few eight societies organized as well, so at this time it was very forward-looking. ..
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>> best known as the father of modn rocketry. we'll learn about goddard's contribution to science through his papers, diaries and artifacts. >> robert goddard attributes his first interest in space travel and his first interest in a career in science to a day in 1899. he went outside with a saw and a hatchet, and he was meant to trim the dead branches off a cherry tree. and he climbed the tree -- i think he made himself a little ladder to get up the tree -- and while he was up in the tree, he looked down on the fields around him, and he thought how wonderful it would be to build
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some kind of a device that could leave the earth and maybe even travel to mars. >> watch c-span's cities tour today at 2 p.m. eastern on american history tv on c-span3. the c-span cities tour, working with our cable affiliates and visiting cities across the country. >> professor menzie chinn, your book, "lost decades: the making of america's debt crisis and the long recovery." how big is the u.s. debt, and who owns it? what do we mean by "owns"? >> guest: the u.s. debt is $14 trillion, and it's maybe in terms of publicly-held debt about 70% of gdp. so that's giving you some perspective. it tells you, you know, it's an unprecedented amount at least in postwar history. now, who is it owed to, i'd say most of it is owed to other
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americans. and so in some sense you can think about it as we're borrowing from ourselves. a sizable chunk is owed to foreigners which if you want a list of main candidates, it'd be the chinese and various oil exporters. >> host: what -- how do you quantify debt? what is considered u.s. debt? >> guest: well, that's a complicated question. i mean, there's most of the numbers you hear are debt that's owed by the u.s. government. so that's actually the number i threw out. but there's a lot of other debt including debt by households to banks, corporations to other corporations and to financial institutions. and so, you know, if i were to add up all that debt, it would be sort of double counting. and, in fact, most of the time as economists we talk about the net debt. so what's our net debt to the rest of the world in terms of all private individuals and the government. and that works out to something like, at the moment, 25% of gdp.
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now, that's a lot, but we probably in and of itself it's not as problematic as certain times. the question is not net debt, you know, netting out what the corporations owe each other. but certain households and certain corporations get into trouble, and they're unable to pay their debt, and they become insolvent. that ripples through the economy, and you can't stay, oh, there's a dollar of debt here, but it's owed to another person here and it washes out. it's those times that lead to crises when institutions and households have counted on having assets, they've loaned money to somebody, and they can't get it back. and corporations or firms have borrowed money, and they can't pay it back, and that results in a real debt crisis. >> host: let's talk about public debt. when you talk about the $14 trillion, is that correct, of public debt, does that include future social security, medicare
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payments, things like that? >> guest: no, it doesn't. it includes just the outstanding amount of treasuries that are out there. and in general, what i'm going to do is sort of net out what's owed between accounts within the u.s., the federal government. so it's really just what's the debt outstanding that's being held by the public. >> host: professor chinn, what is a treasury? >> guest: a treasury is a security or liability of the federal government that's directly issued by the u.s. treasury. so borrowed by the federal government. >> host: do you own treasuries? do i own treasuries? >> guest: we -- no. if we're investing in a pension fund, anything like that, we're indirectly owning treasuries. it's likely they'll hold a certain amount of government treasuries. i don't, i think, have anything. typically we don't unless, you know, you have it in some ira that's invested in some other fund. maybe, you know, a savings bond would be the closest thing that a lot of us would have seen.
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>> host: the university of wisconsin, does it hold treasuries? >> guest: that's a good question, i actually don't know. probably. not the university itself, but sort of retirement system that its employees are invested in. >> host: all right. we say that the chinese are buying our debt. >> guest: uh-huh. >> host: what does that mean? how does that operate? >> guest: well, the way to think about it is the chinese, for a long time, were exporting a lot, lot more than they were importing. and they would, as a country, earn proceeds. and most of it was was in the form of dollars. so they exported a lot of stuff to the rest of the world. most of the goods they sell are invoiced in dollars, so they get receipts in dollars. and the question then is if they're earning a lot more from their exports than they're spending on imported goods, then they're going to have a pile of foreign exchange accumulating. and you could keep it in currency, but, you know, currency gets you zero interest in practical. so what they do is, typically,
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it's held in the form of treasuries. so when you say or you hear somebody say that the chinese hold lots of treasuries or they have big dollar reserves, essentially they're saying that they're holding, you know, dollar assets mostly in the form of treasuries because treasuries are in some ways the safest asset in the world. you know, we haven't defaulted for a long stretch of time on treasuries, the u.s. government, and they're easy to get in and out of. that is, they're highly liquid. so in some sense it's the ideal form in which to save in. and that's why the chinese and many oil exporters like saudi arabia and kuwait would have their foreign exchange reserves in the form of treasuries. >> host: as an economist, is that a bad thing for the u.s.? >> guest: i don't think it's necessarily a bad thing that china holds them. i think it would be a bad thing if we kept on having the rest of the world accumulate treasuries at a rapid pace. because what it means is the u.s. government is accumulating debt at a rapid pace.
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now, those things, those processes that were underway for a good chunk of time during the 2000s and even back into the 1990s, they're slowing down. so one of the big, earth-shaking things that you don't hear about very much right now is that china's actually running down its pile of foreign exchange reserves. that is a sharp, sharp, sharp break with what has happened over the past 15 years. and so we are getting, in some sense, what we wanted that the u.s. government is, you know, as a share of gdp and as a share of world gdp accumulating debt at a less rapid pace. but it's also the case where the rest of the world isn't buying as many treasuries as it used to. and that over time has ramifications for the interest rates we pay. you know, if they're buying less of our treasuries, then relative to anything else the price of treasuries will be lower, and that's the same as higher interest rates, okay? so there are many offsetting effects going on at the same time, but that's the tendency. if emerging market countries
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are, including china and oil exporters, tend to accumulate fewer treasuries, that's going to put upward pressure on interest rates. and that, too, has been a change over the past years where interest rates have -- including interest rates on u.s. government debt -- have been unnaturally low. >> host: well, the title. the title of your booking is "lost decades." what happened in 2008, and how has that rippled? >> guest: well, that's a great question, and i think the key idea that my co-author and i wanted to put forward is that through all of the swelter of acronyms like cdss and cdos and mortgage-backed securities and all these other terms that were flying around, there's basically one, single, underlying story that has actually been repeated over and over again throughout history. and that is that for whatever reasons governments either encourage or on their own push through increased borrowing.
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sometimes it's in the belief that the times are different and we can manage that increased borrowing in an efficient way and a safe way. so alan greenspan sometime in the mid 2000s said, well, we're all borrowing much more, but we're, in essence, a lot smarter than we used to be. we have computers to manage risk, we have new theories about how to deal with risk, we have new derivatives that can help us manage risk. so the idea that we could just borrow more is not as scary as it used to be. and i think our view is that's a very dangerous idea. and it's a particularly dangerous idea because we get into trouble exactly when we borrow a lot, and then the environment changes, and a lot of the borrowing that looked like it was going to be repaid easily isn't. and that's, essentially, 2008. it's the household borrowed to the hilt because they thought, well, housing prices would keep
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on going up, so it makes sense to borrow. the banks loaned, and they also borrowed. financial institutions borrowed, and they were partly able to evade regulations because the regulations were outdated with respect to, you know, how much you had to hold in reserve as capital. so you had a combination of financial deregulation, that's a sort of direct government intervention. you had the government itself embarking on a spending spree after the 2001 tax cuts. we cut taxes again in 2003. that encouraged more borrowing. and we had financial innovation. and all these three things led to an increase in borrowing by all sectors of the economy, and it all worked fantastically to give us in this period of prosperity until, of course, it didn't work. that is, people said, oh, let's reassess whether housing prices will keep on going up. oh, those securities that we issued, i don't think they're worth quite as much as we
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thought or the regulators thought. and the whole system starts unraveling in reverse. >> host: the political response to 2008, ben bernanke, henry paulson, sheila bair, presidents bush and obama. did they get it right? be. >> guest: i think once the crisis unfolded, definitely ben bernanke and the federal reserve acted correctly. that's no small measure due to the part that bernanke's doctoral thesis had to do with the great depressioning and the fact that -- depression and the fact that, you know, he worked out a new interpretation of why the great depression was so severe, and that was because of the collapse of the banking sector. and this view was slightly, actually, a big departure from the dominant view that was associated with milton friedman which had talked about the monetary influences. bernanke talked about credit influences, that you really have to rescue the financial system to make sure that lending
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continues. and so i give him a lot of credit for saving things. the bush administration did push through a small stimulus package many 2008, and that probably helped a bit. but really many terms of fiscal policy -- in terms of fiscal policy t.a.r.p., which was the bank bailout, was incredibly important. because it reassured people in the financial sector, along with the federal reserve actions, reassured people that the banking system was going to continue. okay? essentially, t.a.r.p. was a recapitalization of the banking system. the banks had been holding lots of assets that suddenly were less valuable than they originally thought. if that happens sufficiently, then the banks are insolvent, and they either shut down or continue as zombie banks as they did in japan for a while. so you need some money to come in to provide funds to make those banks solvent. and that's what the u.s. government did. if it hadn't, then i would think
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that, you know, the financial system would have ground to a halt eventually. it would not immediately, but it would have stopped lending. and you can't run an economy, actually, without a financial system that's working. >> host: professor chinn, are recessions and economic downturns natural occurrences? >> guest: i think they're natural occurrences because you're always going to have a confluence of events that strike economies that were going to push them down or up. and so cycles are going to occur. you don't want to think of them as sort of mechanical, so at the moment you hear about people saying this recovery is unnaturally long, it's longer than the average, and so it must, by definition, come to an end. my view would be at some time, you know, either the federal reserve acts in a way that tips the economy into a recession or some shock strikes that forces the fed's hands or some combination of shocks from overseas just induces the
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economy to tip into a negative growth pattern. and so the big question now -- i guess there are two big questions. one is, you know, what will the federal reserve do. will it be able to manage to slow the economy down? that's their objective, never suggesting throwing the economy into recession. the other question is if the federal reserve is not the thing that precipitates, is it the combination of world events? and that would be a new event. most of the time i think we think about the united states as moving along on its own path and not being driven by external influences. if this is a new case where china and china's slowdown precipitates a greater slowdown in the east asian region which then is transmitted to the u.s., that would be a new configuration to the world economy. >> host: was the legislative response in the last, since 2008, has it been effective?
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some of the new restrictions, some of the new laws that have been put in place, are they important for stabilization of the economy? >> guest: so i think that there are many aspects of the legislative response, and, you know, the first one, the first big one was the aara, the american recovery and reinvestment act which was implemented in 2009, and that was a big countercyclical move. that is, as the economy was going down, there was upward movement from that stimulus. and i'd say that was one of the most important things to push the economy in the right direction. otherwise we could have been mired in a much longer recession. okay? that was early on. and most of the effects of that have petered out. but i think that mitigated a lot of the pain and suffering that could have occurred. now, the other innovations or legislation that was passed, i think, have more long lasting
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implications, and that includes the dodd-frank legislation regarding banking regulation. and so that's really important over the longer term. insofar as it really, it reduces the incentives for banks to overleverage; that is, to borrow to up in large amounts, only putting in a little bit of their own shareholders' money and borrow up using sort of a short-term financial market instrument. which those are the two sort of things that got the financial system into trouble before. and i think with the implementation of dodd-frank and a sort of international regulations on banking, so what are called under the rubric of baas sell iii, you've actually made the banking system a lot more stable -- basel iii. there still remain some holes in the regulation to the international financial system, and i'd say that it's -- you know, one of the things is we
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fixed problems in the sectors where we've seen the problems. it's likely that the next problem we see is someplace that we didn't expect it or we didn't apply regulations. i mean, one way of thinking about 2008 is, you know, it wasn't the mainline banks that were big problem. we'd regulated them in the 1930s in response to the problems of the great depression. but then we encountered a whole set of problems in the shadow financial system because individuals and firms and banks and other financial institutions have worked their way around those regulations, or, you know, used the term of financial innovation. they had innovated their way around the innovations. so we put in a whole set of innovations now. i think it's made the system safer for a period of time, more robust, more stable. but people are always going to be looking around for a way of evading the regulations so that they can get a higher rate of return.
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and at the same time, impose the risks upon the greater financial system. and that's the hazard, that regulators keep on having to try to keep up with those who are trying to evade the regulations. >> host: is that the message you want people who read "the lost decades" to take away? >> guest: the lesson -- that's exactly one of them. it's that you can't just say we've had this one big crisis, we've fixed things, now move on. history' replete -- history's replete with banks, households all wanting to leverage up, borrow a lot, and there's a tendency because it induces -- at least in the short term -- a period of buoyant growth and returns. there's always incentives to say, well, there's no trouble. there's no problem at this point. if i'm a politician, it's going to land in somebody else's lap in the future.
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if i'm a household, you might say i'll get out just before everything crashes. or there's a tendency to say times are different now. we're just smarter or we're more nimble than we used to be. the old rules don't apply. and i think our main point is the old rules, to a large extent, do still apply. if you try to borrow a lot, leverage up a lot, then inevitably some correction will come around, and a lot of pain is going to be inflicted upon a lot of -- and many times innocent bystanders. >> host: what are you teaching here at the university of wisconsin, and what do you want your students after a semester with you to leave with? >> guest: so i teach mostly macroeconomics. so international macroeconomics to both undergraduates in the economics department, and i teach sort of an international macro course to masters-level students in the school of public affairs. and the one thing that i want
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them to know is keep alert, to read about what's going on in the world and incorporate what you've learned in class to analyzing why is it that, you know, things are the way her, why is it that certain individuals in certain positions of management in financial firms say what they say versus what people in policy positions would say versus what journalists would say. in particular, to use their minds to analyze and dissect what's being stated and argued rather than taking for granted, you know, somebody says something and because they look authoritative, believe it. i want them to question, question everything and to use their minds to analyze what's going around, going on around them. >> host: all right. macroeconomics. why can a small country like
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greece affect our giant economy here in the u.s.? >> guest: so that's an interesting question. it is -- let me give you an analog. there was an interesting statement about the construction market or construction in the u.s. leading up to 2008. people would say, well, construction of housing only accounts for a small portion of gdp. how can it affect the rest of the economy? and i think what we learned over the past eight, nine years is interconnections matter, and in mar in the case of housing it wasn't just the actual act of building housing, but it was the fact that people owned assets that were involved in housing or houses. and that assets were derived or derivatives had their value on the basis of housing prices. in the case of greece, lots of private individuals had assets that were issued by the greek
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government or issued by greece, private individuals. and so those holdings lose value as you think that they're less able to to pay. and so there's a big ramification for people's portfolios, their perceptions of net wealth. that's one instance. i'd say in the case of greece there was another set of concerns, one of which is that the euro was built on the concept that no government could default, that every government was going to be embarked upon a path of sustainable finances, okay? so very fact that a country within the euro area would get into trouble and then would have to be bailed out which is against, you know, that's written out of the charter for the eurozone. so that sort of forced the reassessment of what is possible. and if you think about it, it's
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not just greece, it's that greece signals what could happen to the other periphery countries. so portugal, italy, ireland, spain. you know, those other countries also have problems with their finances, and it's not just greece going out, but the signal that greece gives about whether those countries could also face a similar problem have to be bailed out and what that means for the sustainability of the single european currency. >> host: and you're watching booking tv on c-span2, and we've been talking with university of wisconsin professor menzie chinn. he's the co-author of this book, "lost decades: the making of america's debt crisis and long recovery." thank you, professor. >> guest: thank you. >> patrick sloyan is a pulitzer prize-winning journalist, he also was a wire service reporter during the kennedy administration. he's the author of "the politics of deception: jfk's secret decisions on vietnam, civil
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rights and cuba." what was the kennedy administration like during its last year? >> well, it was all about politics, getting ready for re-election. and he had three major issues to deal with. one was the cuban missile crisis. he was concerned that curtis lemay would tell the truth about cuban missile crisis which is what my book is based on, 289 hours of secret tape recordings kennedy himself made. they were hidden for 34 years. but i listened to all of them along with 16 hours of telephone calls. but you can hear in those tape recordings that nikita khrushchev offered kennedy a solution to the cuban missile crisis, essentially a missile swap. get your missiles out of turkey, and i'll get them out of cuba. kennedy said, great idea. i'll do it. he accepted it within minutes of
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kruschev's offer. so that's what the book tells you that you won't read elsewhere. also on civil rights, kennedy was very much opposed to martin luther king. he was very much opposed to the civil rights movement. one reason is he got 85 electoral votes from the south in 1960. if he didn't get 'em, richard nixon would have been president. so king was an obstacle for keeping those votes. i must say lyndon johnson, his vice president, told him, he said you won't get those votes the next time. you've got to give the moral support for the civil rights movement. so kicking and screaming, he did support civil rights. of course, it ended up with johnson doing it. on vietnam you'll see kennedy seemed deeply involved in what was the overthrow of the president of south vietnam, the
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likely overthrow. and alsoing the assassination -- also the assassination. he knew the president would be murdered, but he didn't do, at last minute he refused to take steps to save his life. this is all many in these tape recordings. -- in these tape recordings. so it's an eye-opener of a book. tells you things you thought you knew about kennedy. i thought i knew about kennedy. i covered all these topics in 1963. it isn't until now, 50 years later, after listening to these tapes that i found out what really happened. >> how did you get access to these tapes? >> i knew they were available at the kennedy library, but they're very hard to listen to. you know, it was low tech in 1960, '63. so you spent hours, you spent eight hours to get an hour of
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tape. it was that hard. so it was bitter work, i'll tell ya. many headaches listening to these things. telephone recordings are very good, very clear. but some of -- the kennedy library held back on stuff that was most controversial. you know? his involvement in the overthrow of the president. he knew him personally. he was the original booster to be president of vietnam, defended him while he was a senator. but you remember the monk imnolating himself on the streets of vietnam. that picture changed kennedy, changed the whole situation in vietnam. it was just a matter of time before kennedy got rid of him. >> from what you gathered on the tapes and where the kennedy
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administration was going into its second term, what do you think it would have looked like if it had come to completion? >> well, more like mansfield who was the senate democratic leader. i dealt with him quite a bit. he assured me that kennedy would withdraw from vietnam. but bobby kennedy, also a senator, assured me kennedy would never pull out of vietnam. now, i believe mansfield. but i think -- and according to mike, ken key told him at one point i can't do it now, in '63, i have to get reelected in 1964. after that then i'll withdraw, a phased withdrawal. but events -- once he overthrew the president of vietnam, that government collapsed within weeks. the vietnamese military collapsed. so it was,

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